How the Recession Has Affected the Commercial Construction Industry

For some time, I have asked myself (and others), “What was so great about The Great Recession?” This economic crisis has been deemed by the International Monetary Fund (IMF) as the worst world-wide recession since World War II. Its impact has been felt in nearly every industry imaginable, and particularly in the construction industry. It ran its course for 18 interminably long months, between 2007 and 2009; the worst period occurred at mid-year, 2009.

How did it affect the commercial construction industry and what has/will be happening nearly 5 years after the official “end” of the Great Recession?

What happened?

The construction industry is accustomed to cyclical changes but the Great Recession was hardly a typical downturn or cyclical change. No sector of the construction industry was spared from the harsh impact of the Great Recession; not residential, commercial, industrial, or heavy and civil engineering.

One aspect of the recession that is not often mentioned is that the cyclical boom of the construction industry was followed directly by the recession, leaving a large glut of residential and commercial real estate on the market.

As the recession deepened, homeowners were defaulting on their homes, others were not buying homes as they had planned, and investors were being extremely cautious in financing new construction projects.

2012 – 2013 was predicted to be a period of growth and non-residential construction activity was expected to continue its recovery. Once, again, there were recovery delays, fueled in part by government and financial institutions:

A federal budget sequester resulting in scaled back government spending.

A federal government shutdown.

Credit restrictions placed on construction projects, home loans, loans in general.

Increasing long-term interest rates based on expectation of the government reducing its stimulus program.

Those factors, and the extremely slow recovery of the world economy, certainly had a direct and negative influence on the construction industry.

Moving into 2015

So what is the state of commercial construction in 2014 and beyond? Recovery is happening, but not at an increased pace. Factors that (according to industry observers) influenced growth in 2014:

Weather-related delays on projects at the start of the year.

Ongoing sluggishness in the institutional market and lowered construction spending projections.

Financial institutions continued their restrictive lending practices.

Is there any good news? Yes! Let’s look at some of the more favorable changes in 2014 and some positive indicators going into 2015:

Some easing of lending restrictions; loans rose 4 percent in the second quarter of 2014, most of it related to the commercial real estate industry.

Commercial construction projects are rapidly increasing in several regions of the U.S., particularly in Texas (Houston) and the southern region in general, and New York (Rochester and New York City), Massachusetts (Boston), and Louisiana (New Orleans).

Consumers are “cautiously optimistic” and spending is up, as is the increase in jobs.

The commercial construction industry was, and continues to be deeply affected by the Great Recession. But industry watchers, like consumers, are cautiously optimistic (with more emphasis on cautious than optimistic) that the industry is slowly and steadily moving forward.

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